Skilled Immigration and Less-Skilled Immigration Have Different Implications

by Reihan Salam

To her credit, Emily Badger of Wonkblog seems to acknowledge that the question of whether or not the U.S. should welcome more skilled foreign workers is separate and distinct from the question of whether or not the U.S. ought to pass comprehensive immigration reform legislation that also sharply increases the influx of less-skilled immigrants who are likely to command low wages. She cites a new report from Standard & Poor’s:

“I think people are scared,” says Beth Ann Bovino, the U.S. Chief economist for Standard & Poor’s. “There are a lot of misconceptions about what it means when we have immigrant talent come to the U.S. I completely understand the worries about ‘are we going to bring all of these people over? Are they going to take our jobs?’”

But, she argues, the opposite is actually true: employment-based immigration reform would be a boon for the sluggish U.S. economy, temporarily easing the country’s “skills gap,” driving new innovation, tax receipts, consumer demand, and even job growth for native-born workers. By Bovino’s calculation in a new S&P report, immigration reform targeting skilled foreign workers could add 3.2 percentage points to real GDP in the U.S. over the next 10 years. Over the same time period, it could cut $150 billion from the deficit. Immigrants with employment-based visas, she argues, wouldn’t “take our jobs” – they would complement them.

Badger raises an obvious and important question:

But why wouldn’t the arrival of all these new hypothetical skilled workers come at the expense of workers already here? Bovino points to the gap between businesses looking to fill high-skilled jobs and an education and training system that isn’t producing the right workers to take them. Importing foreign workers to fill the U.S. skills gap obviously isn’t a long-term solution for that imbalance. But it would help in the short term, while also bringing in younger workers to help pay for and offset an aging U.S. population.

There is another way to understand the challenge facing employers — firms are looking to fill high-skilled jobs at a given level of compensation, and the labor market for workers with (for example) strong quantitative skills is very tight. It’s a safe bet that the unemployment rate for women and men who received a top score on the AP Calculus BC exam as high school students is extremely low, and I wouldn’t be surprised if this group has seen its compensation levels grow at a faster rate than the general population. It is not uncommon for STEM students to gravitate towards financial services, software development, and even marketing, even when their initial training was in some “purer” discipline. If I want to find an excellent electrical engineer at a cut-rate price, I have a problem — there is a very good chance she’s decided to transition into financial engineering instead. 

Bovino insists that immigrants with employment-based visas wouldn’t “take our jobs”; rather, they would complement them. There is a lot of truth to this line of argument. But there is no question that immigrants with employment-based visas will compete with some U.S. workers, who will see their compensation levels decrease as a result, while complementing others. 

One could argue that the “gap” Bovino identifies is not really a public policy problem at all. I could just as easily say that there is a gap created by the unwillingness of high human capital people to take a low-wage job as my personal valet. Though there is no question that America’s education and training systems are inadequate in many respects, programs that offer marketable skills, e.g., the various for-profit and non-profit learn-to-code boot camps that are cropping up in U.S. cities, are having no trouble attracting customers. The deeper issue is that a tight labor market for the quantitatively gifted is good news for the quantitatively gifted and bad news for those who employ them.

All that said, I’m an enthusiastic proponent of welcoming a larger number of skilled foreign workers, even though an influx of skilled foreign workers will likely, in the short- to medium-term, depress compensation levels for the domestic workers (foreign-born and native-born) who compete with them. Even so, my sense is that the benefits outweigh the costs. First, skilled workers earning high wages contribute more in taxes than they receive in benefits; this offsets the congestion costs associated with larger populations, and it makes it easier for the public sector to shoulder the burden of providing services to those in need. This is why I would emphasize earning potential — do you have a job offer, and will your compensation be high enough to place you in the top third or the top fifth of the U.S. household income distribution? — over paper credentials. Second, the U.S. benefits from the agglomeration of talent in U.S. metropolitan areas; drawing in skilled foreign workers will deepen our pool of technical talent, and generate knowledge spillovers that will benefit the population at large. Third, an influx of high-wage professionals will stimulate demand for labor-intensive services provided by domestic less-skilled workers (foreign-born and native-born). The upshot will be that we will compete down the wages of U.S. workers earning well above the median income (medical professionals, financial services professionals, software developers) in the short- to medium-term; we will further entrench the dominant position of U.S. economic agglomerations by deepening their pools of talent, raising the likelihood that new intellectual breakthroughs and new business models will emerge in the U.S.; and we will better the lives of the consumers of the services of high-wage professionals (almost everyone) by lowering costs, and we will improve the labor market for domestic workers with complementary skills.